For many businesses, workers’ compensation costs are a significant expense. While industry classification and payroll determine base premiums, an employer’s claims history plays a crucial role in adjusting costs. This is done through the experience rating system, which rewards businesses with fewer claims and penalizes those with frequent workplace injuries.
What is Experience Rating?
Experience rating is a mandatory adjustment to workers’ compensation premiums for employers who meet a certain premium threshold. Instead of paying the standard industry rate, businesses are assessed based on their own loss experience.
The Experience Modification Factor (EMR) is the key component of experience rating. It compares a company’s actual claims history to the expected losses for businesses of similar size and industry.
- EMR < 1.0: Indicates a better-than-average claims history, leading to lower premiums.
- EMR = 1.0: Means the business has an average claims history and pays the standard rate.
- EMR > 1.0: Suggests higher-than-expected claims, resulting in higher premiums.
How Experience Rating is Calculated
The EMR is based on three years of historical loss data (excluding the most recent policy year). The formula considers:
- Incurred Losses: The total cost of workplace injuries.
- Expected Losses: The average loss amount for businesses in the same classification.
- Payroll Size: Larger businesses typically have more predictable claims patterns.
For example, if an employer’s expected loss is $50,000 but their actual claims total $75,000, their EMR will increase above 1.0, raising their premium. Conversely, if claims are lower than expected, the EMR will decrease, leading to discounts.
How to Improve Your Experience Rating and Reduce Costs
- Prioritize Workplace Safety: Implement safety programs, provide proper training, and maintain OSHA compliance.
- Manage Claims Effectively: Investigate accidents promptly, encourage return-to-work programs, and work with insurers to control medical costs.
- Review Payroll and Job Classifications: Ensure that employees are correctly classified to avoid unnecessary risk adjustments.
- Participate in Risk Reduction Programs: Many insurers offer credits for businesses that engage in approved managed care and safety programs.
Take Control of Your Workers’ Compensation Costs
Experience rating is a powerful tool that can significantly impact the cost of workers’ compensation insurance. Investing in accident prevention and claims management not only leads to financial savings but also creates a safer, more productive work environment. With the right strategies in place, you can optimize your workers’ compensation costs while protecting both your employees and your bottom line.
Counter Point can help you find the best coverage at the best price. Schedule a call today to explore our solution.
